Yet another noob? Maybe...

[northernladuk]

I was referring to my old employer. More out of interest that question; I don't intend to break the law.

Not sure what you mean. It is your current employers contract you need to check.

[kryptonite]

Thanks SueEllen. Great reply

Will I be able to split my personal allowance between my PAYE & self assessment tax, or will all of the contracting income be taxed?

[mudskipper]

OK - sounds like the correct thing to do is to invoice as yourself, contact HMRC to say you have extra income to declare and fill in a tax return declaring your earnings. I know some people don't bother, and pocket the money.

I presume you're talking relatively small amounts < 10K or so.

Edit: Check your current employment contract to see whether it prohibits (or requires permission) to take on other work.

[kryptonite]

It is if the new client breaks the handcuff clause or his contract says he can't hold another job while employed or whatever, particularly if this is a competitor/supplier in the same market.

I was referring to my old employer. More out of interest that question; I don't intend to break the law.

[northernladuk]

It's nothing to do with your employer.

It is if the new client breaks the handcuff clause or his contract says he can't hold another job while employed or whatever, particularly if this is a competitor/supplier in the same market.

[SueEllen]

"1) Register as self employed..."

Can I register as self employed while employed full time??

Yes.

I'm not sure you actually have to register any more check on the HMRC website. (In fact it's best to google your search)

I have never filled in a tax return in my life. Will my employer need to deal with my PAYE differently if I am also submitting my own taxes? Do I just fill it in with respect to the contracting earnings, or full earnings for the year?

You need to contact HMRC voluntary and get them to register you for self-assessment. It's nothing to do with your employer at all. They run your main salary through their PAYE system and it's your legal obligation to inform HMRC about any other earnings you have.

Yeah... don't wan't to do anything illegal. If my old employer get audited by the taxman could see the payment to me and start poking around? I suppose if it's cash or a BACS transfer it wouldn't be traceable (???); not so an invoice with my name and address and/or company name (am i right?)

It's nothing to do with your employer.

However there is nothing stopping your bank for reporting you for money laundering if they think the extra cash in your bank account is suspicious. They can also close your account down with no warning.

You are best off notifying it yourself to HMRC. Just phone them up.

You are advised to keep the money you need to pay your tax bill in a separate account so you can pay it next year when it's due.

[kryptonite]

Thanks to all for your detailed replies.

Chef:

"So essentially, you have accepted a fixed price piece of work"

More like "proposed a solution to a problem and set the price". I'm also implementing the solution so I suppose that makes me both a consultant and contractor. Not sure if it matters.

"1) Register as self employed..."

Can I register as self employed while employed full time??

"as i understand it, it seems more of a gentlemans agreement"

Well, a bit more formal than that. I have sent them a written proposal detailing their functional requirements, what I will deliver, and the price I will charge for it. They have agreed to this in writing (email) although nothing has been signed.

"what if you screw things up? or perhaps injure one of their employee's?"

Good point, but that's not possible. I'm just adding a feature to a website. Famous last words?

"setup a ltd"

This was my initial thought. I believe it isn't too expensive. How much does it cost? Will it interfere with my PAYE at work and do I have to inform my employer?

k2p2:

"Will you carry on working full time and fit this work round it?"

Yes, exactly.

"invoice (as yourself) and declare the income on your tax return."

I have never filled in a tax return in my life. Will my employer need to deal with my PAYE differently if I am also submitting my own taxes? Do I just fill it in with respect to the contracting earnings, or full earnings for the year?

Sausage Surprise:

"If it's a one off bit of work for a mate just do it cash in hand"

Yeah... don't wan't to do anything illegal. If my old employer get audited by the taxman could see the payment to me and start poking around? I suppose if it's cash or a BACS transfer it wouldn't be traceable (???); not so an invoice with my name and address and/or company name (am i right?)

Thanks again

[Sausage Surprise]

If it's a one off bit of work for a mate just do it cash in hand - you'll find that most tradesmen do this (of course I am in no way advocating tax fraud and you should obviously declare the cash payment on your end of year return)

[NotAllThere]

Partly the flexibility. If the work isn't T&M, standard contracting type work, I can't really see a brolly wanting to go near it.

Mainly - if you go ltdco/sole trader, you are in control of your money. You are in charge of credit control. If you have trouble getting paid, you have to get the brolly to chase up for you, and though it is part of their service, they've no real incentive to be diligent.

[chef]

No way should it go through a brolly IMO.

just out of curiosity NAT, why not through a brollY? what pro's and con's are there for the other 2 against a brolly?

[NotAllThere]

Advantage of ltdco - limited liability if it goes pear-shaped. Your choices are either that or sole trader. Make sure your contract is IR35 proof in either case.

No way should it go through a brolly IMO.

[northernladuk]

Read the guides on IR35. The flexibility and options they are giving you are not always a good thing.

They must bring you back as a specilist to do a certain piece of work for them in an agreed timescale. You are to be an independant company and must act and be treated as one. That way you can be outside IR35. From your description I would say you are going to be so far in you might as well just go brolly.

Going back to you ex employer is very bad for IR35 so you must make extra effort to understand and manage it.

For me this is such an adhoc arrangement it cannot be classed as a contract and I would suggest umbrella.

[mudskipper]

I may have misunderstood. You're working full time at the moment. Will you carry on working full time and fit this work round it?

If so, then the most straightforward thing would be to simply invoice (as yourself) and declare the income on your tax return.

If you're going full time into contracting, then chef's advice is good.

As far as contracts etc. go, even if you don't go for a proper 'contract', make sure you get a PO from them for the work. Knock up some sort of schedule of work which states what you're going to do for them, and that extra work will be chargeable at £n/day etc.

Good luck

[chef]

So essentially, you have accepted a fixed price piece of work and now want to know the best way to get paid?

As I see it (although I am not an accountant or any sort of legal tax expert) you have 3 options:

1) Register as self employed, do the work, send them an invoice and dont forget to include the money on your personal tax form at the end of the year.
Pros:
- simple to setup
cons:
-what if the work turns into more work, and then a bit more, sorting out the most efficient tax situation later could be a problem.
- as i understand it, it seems more of a gentlemans agreement, i.e you have no contract or written agreement setting out terms and conditions, that adds a whole heap of issues that would ring alarm bells in my ears
-- whats to say they dont at some point say, "oh and while you're doing x, can you also do y,z (for the same agreed price)", if there are no terms and conditions then they are free to dictate what they want done (and there is ALWAYS things they want done) before they believe he job is done and you get paid. you reply "errr no, thats not what we agreed" they reply "err yes it is, ok we didnt say it but obviously thats what we meant", this goes back and forth nicely at first and then eventually you cave in just to get paid, they get free work done and you wish you had a clear definition of work
- what if you screw things up? or perhaps injure one of their employee's? YOU are liable, therefore you NEED to get insurance, have you factored that cost into this fixed price work?
- you need to sort out the tax and NI side of things yourself, i would advise getting an accountant to advise you as HMRC dont take kindly to "i didn't know" when you screw up.

2) register with an umbrella company
pro's
- it's more official and easier if more work comes your way as the umbrella sort of the tax and NI side of things deducting it from your income before you get paid.
- for this they (the umbrella) will need to see a contract, that sets out the terms and conditions and gives you a scope to refer to when the company ask you to do more work included in your fixed price offer.
cons
- if more work comes along then maybe the umbrella route isn't the most tax efficient way of doing things compared to setting up a ltd

3) setup a ltd
pro's
- you are acting like a proper business rather than doing an old mate a favour
- you are set up for future work if the trickle of work turns into a stream which turns into a river and becomes your main job
- you can earn money in the most tax efficient way (IMO) by looking at what you are doing as a business
cons
- compared to the other options there are intial start up costs (which i guess you haven't factored into your fixed price work offer)
- it's more initial work to do (i.e opening a company account, registering a company etc.)
- if you are just doing this one piece of work and not getting paid much and all you want to do is have the money to spend right now then setting up a company is not really the right approach to take (IMO).

If I was you and I thought this is just a one off for a bit of extra pocket money and have the possibility of having 1 or 2 extra small bits of work in the future but it wont turn into your main business then I would personally go the Umbrella route. It forces a contract to be written, they take care of the legal financial side and you get paid what you should actually get paid. I would also look into getting insurance (even if you think "yahh but really what's the chance") for the main reason that this simple favour for an old company could turn very nasty if things go wrong. Agreed, you probably haven't factored in the cost of it in your fixed price offer but that's the punishment for giving an offer first before doing your research, dont ignore the chance that something might go wrong.


HTH

Chef

[kryptonite]

Hi,

I have just been offered work by my previous employer (I am working full time ATM). This won't be a fixed number of hours per week/month" contract as such. I have read a lot of threads on this forum, and they all seem to be referring to a traditional contract like this. I wonder if anyone can advise me how to handle this, whether it would be wise to form a company, and how to deal with tax (or where to go for advice).

A few facts about the situation:

Given my current salary, and the value of the job(s), it is unlikely to put me into a new tax band this year.

The work they have offered is a software development task. I have given them an estimate of the amount I will charge for the job. I have not mentioned the number of hours it will take. They have accepted my written proposal and are asking me to process with the task.

They have not advertised the job - I am on good terms with them and they know that I will deliver.

There are likely to be similar jobs in the future although obviously this is not guaranteed.

They have not, and will not, specify any technical details or timescales for any of the jobs; I am free to design, develop and manage the projects on my own.

That should get the ball rolling I hope.
Cheers!